ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
As at June 30, 2016 and December 31, 2015
|
(Expressed in US Dollars - Unaudited)
|
|
|
Note
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
2,888,471
|
|
|
$
|
6,493,486
|
|
Prepaid expenses and other
|
|
|
|
|
371,041
|
|
|
|
192,226
|
|
Total current assets
|
|
|
|
|
3,259,512
|
|
|
|
6,685,712
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
|
|
27,443
|
|
|
|
30,083
|
|
Capitalized acquisition costs
|
|
4
|
|
|
55,204,041
|
|
|
|
55,204,041
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
$
|
58,490,996
|
|
|
$
|
61,919,836
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
$
|
125,580
|
|
|
$
|
122,043
|
|
Accrued liabilities
|
|
|
|
|
335,061
|
|
|
|
394,436
|
|
Derivative liability
|
|
6
|
|
|
14,700,000
|
|
|
|
-
|
|
Total current liabilities
|
|
|
|
|
15,160,641
|
|
|
|
516,479
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
6
|
|
|
-
|
|
|
|
13,900,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
15,160,641
|
|
|
|
14,416,479
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
Share capital, no par value; authorized 500,000,000 shares; 116,313,638 shares issued and outstanding at June 30, 2016 and December 31, 2015
|
|
7
|
|
|
243,692,185
|
|
|
|
243,692,185
|
|
Contributed surplus
|
|
|
|
|
34,056,012
|
|
|
|
33,979,717
|
|
Accumulated other comprehensive income
|
|
|
|
|
1,123,444
|
|
|
|
816,435
|
|
Deficit
|
|
|
|
|
(235,541,286
|
)
|
|
|
(230,984,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
|
|
43,330,355
|
|
|
|
47,503,357
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
|
|
$
|
58,490,996
|
|
|
$
|
61,919,836
|
|
General Information, Nature of Operations
and Liquidity Risk (Note 1)
Commitments (Note 9)
The accompanying notes are an integral part
of these condensed consolidated interim financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
For the Three and Six Months Ended June 30, 2016 and 2015
|
(Expressed in US Dollars - Unaudited)
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
Note
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting fees
|
|
|
|
$
|
63,497
|
|
|
$
|
111,003
|
|
|
$
|
136,687
|
|
|
$
|
258,372
|
|
Depreciation
|
|
|
|
|
1,325
|
|
|
|
1,770
|
|
|
|
2,640
|
|
|
|
3,539
|
|
Insurance
|
|
|
|
|
69,457
|
|
|
|
70,708
|
|
|
|
131,206
|
|
|
|
138,085
|
|
Investor relations
|
|
|
|
|
28,429
|
|
|
|
60,877
|
|
|
|
49,387
|
|
|
|
93,080
|
|
Mineral property exploration
|
|
4
|
|
|
1,179,662
|
|
|
|
828,212
|
|
|
|
1,976,167
|
|
|
|
1,229,542
|
|
Office
|
|
|
|
|
12,622
|
|
|
|
11,123
|
|
|
|
20,459
|
|
|
|
18,111
|
|
Other
|
|
|
|
|
5,545
|
|
|
|
5,990
|
|
|
|
10,021
|
|
|
|
10,752
|
|
Professional fees
|
|
|
|
|
49,116
|
|
|
|
75,467
|
|
|
|
91,950
|
|
|
|
125,613
|
|
Regulatory
|
|
|
|
|
21,236
|
|
|
|
28,516
|
|
|
|
57,974
|
|
|
|
99,368
|
|
Rent
|
|
|
|
|
35,374
|
|
|
|
44,106
|
|
|
|
70,735
|
|
|
|
84,986
|
|
Travel
|
|
|
|
|
19,435
|
|
|
|
18,789
|
|
|
|
38,648
|
|
|
|
39,642
|
|
Wages and benefits
|
|
|
|
|
521,925
|
|
|
|
594,216
|
|
|
|
1,092,163
|
|
|
|
1,304,793
|
|
Total operating expenses
|
|
|
|
|
(2,007,623
|
)
|
|
|
(1,850,777
|
)
|
|
|
(3,678,037
|
)
|
|
|
(3,405,883
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(loss) on foreign exchange
|
|
|
|
|
2,098
|
|
|
|
(131,360
|
)
|
|
|
(121,764
|
)
|
|
|
570,895
|
|
Interest income
|
|
|
|
|
5,335
|
|
|
|
14,269
|
|
|
|
12,155
|
|
|
|
30,625
|
|
Unrealized gain/(loss) on derivative
|
|
6
|
|
|
(100,000
|
)
|
|
|
(100,000
|
)
|
|
|
(800,000
|
)
|
|
|
100,000
|
|
Other income
|
|
|
|
|
31,340
|
|
|
|
19,000
|
|
|
|
31,340
|
|
|
|
19,000
|
|
Total other income (expenses)
|
|
|
|
|
(61,227
|
)
|
|
|
(198,091
|
)
|
|
|
(878,269
|
)
|
|
|
720,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
|
|
(2,068,850
|
)
|
|
|
(2,048,868
|
)
|
|
|
(4,556,306
|
)
|
|
|
(2,685,363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain/(loss) on marketable securities
|
|
|
|
|
11,224
|
|
|
|
(5,788
|
)
|
|
|
10,751
|
|
|
|
(14,167
|
)
|
Exchange difference on translating foreign operations
|
|
|
|
|
(3,225
|
)
|
|
|
196,464
|
|
|
|
296,258
|
|
|
|
(830,734
|
)
|
Total other comprehensive income (loss) for the period
|
|
|
|
|
7,999
|
|
|
|
190,676
|
|
|
|
307,009
|
|
|
|
(844,901
|
)
|
Comprehensive loss for the period
|
|
|
|
$
|
(2,060,851
|
)
|
|
$
|
(1,858,192
|
)
|
|
$
|
(4,249,297
|
)
|
|
$
|
(3,530,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and fully diluted loss per share
|
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
|
|
116,313,638
|
|
|
|
116,313,638
|
|
|
|
116,313,638
|
|
|
|
116,313,638
|
|
The accompanying notes are an integral part
of these condensed consolidated interim financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
|
For the Six Months Ended June 30, 2016 and 2015
|
(Expressed in US Dollars - Unaudited)
|
|
|
Number of
shares
|
|
|
Share capital
|
|
|
Contributed
surplus
|
|
|
Accumulated
other
comprehensive
income/(loss)
|
|
|
Deficit
|
|
|
Total
|
|
Balance, December 31, 2014
|
|
|
116,313,638
|
|
|
$
|
243,692,185
|
|
|
$
|
33,439,249
|
|
|
$
|
2,196,252
|
|
|
$
|
(226,172,156
|
)
|
|
$
|
53,155,530
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
361,991
|
|
|
|
-
|
|
|
|
-
|
|
|
|
361,991
|
|
Unrealized loss on available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(14,167
|
)
|
|
|
-
|
|
|
|
(14,167
|
)
|
Exchange difference on translating foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(830,734
|
)
|
|
|
-
|
|
|
|
(830,734
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,685,363
|
)
|
|
|
(2,685,363
|
)
|
Balance, June 30, 2015
|
|
|
116,313,638
|
|
|
|
243,692,185
|
|
|
|
33,801,240
|
|
|
|
1,351,351
|
|
|
|
(228,857,519
|
)
|
|
|
49,987,257
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
178,477
|
|
|
|
-
|
|
|
|
-
|
|
|
|
178,477
|
|
Unrealized loss on available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,329
|
|
|
|
-
|
|
|
|
8,329
|
|
Impairment of available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
219,402
|
|
|
|
-
|
|
|
|
219,402
|
|
Exchange difference on translating foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(762,647
|
)
|
|
|
-
|
|
|
|
(762,647
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,127,461
|
)
|
|
|
(2,127,461
|
)
|
Balance, December 31, 2015
|
|
|
116,313,638
|
|
|
|
243,692,185
|
|
|
|
33,979,717
|
|
|
|
816,435
|
|
|
|
(230,984,980
|
)
|
|
|
47,503,357
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
76,295
|
|
|
|
-
|
|
|
|
-
|
|
|
|
76,295
|
|
Unrealized gain on available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,751
|
|
|
|
-
|
|
|
|
10,751
|
|
Exchange difference on translating foreign operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
296,258
|
|
|
|
-
|
|
|
|
296,258
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,556,306
|
)
|
|
|
(4,556,306
|
)
|
Balance, June 30, 2016
|
|
|
116,313,638
|
|
|
$
|
243,692,185
|
|
|
$
|
34,056,012
|
|
|
$
|
1,123,444
|
|
|
$
|
(235,541,286
|
)
|
|
$
|
43,330,355
|
|
The accompanying notes are an integral part
of these condensed consolidated interim financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
|
For the Six Months Ended June 30, 2016 and 2015
|
(Expressed in US Dollars - Unaudited)
|
|
|
Six Months Ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
Loss for the period
|
|
$
|
(4,556,306
|
)
|
|
$
|
(2,685,363
|
)
|
Add items not affecting cash:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,640
|
|
|
|
3,539
|
|
Stock based compensation
|
|
|
76,295
|
|
|
|
361,991
|
|
Unrealized (gain) loss on derivative liability
|
|
|
800,000
|
|
|
|
(100,000
|
)
|
Changes in non-cash items:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(23,117
|
)
|
|
|
44,024
|
|
Prepaid expenses and other
|
|
|
(134,396
|
)
|
|
|
(167,549
|
)
|
Accounts payable and accrued liabilities
|
|
|
(60,995
|
)
|
|
|
(575,535
|
)
|
Cash used in operating activities
|
|
|
(3,895,879
|
)
|
|
|
(3,118,893
|
)
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange on cash
|
|
|
290,864
|
|
|
|
(872,177
|
)
|
Decrease in cash and cash equivalents
|
|
|
(3,605,015
|
)
|
|
|
(3,991,070
|
)
|
Cash and cash equivalents, beginning of the period
|
|
|
6,493,486
|
|
|
|
13,521,473
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period
|
|
$
|
2,888,471
|
|
|
$
|
9,530,403
|
|
The accompanying notes are an integral part of these condensed
consolidated interim financial statements.
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
Six Months Ended June 30, 2016 and 2015
|
(Expressed in US dollars – Unaudited)
|
|
1.
|
GENERAL INFORMATION, NATURE OF OPERATIONS AND LIQUIDITY RISK
|
International Tower Hill Mines Ltd. (“ITH”
or the "Company") is incorporated under the laws of British Columbia, Canada. The Company’s head office address
is 2300-1177 West Hastings Street, Vancouver, British Columbia, Canada.
International Tower Hill Mines Ltd. consists of ITH
and its wholly owned subsidiaries Tower Hill Mines, Inc. (“TH Alaska”) (an Alaska corporation), Tower Hill Mines (US)
LLC (“TH US”) (a Colorado limited liability company), Livengood Placers, Inc. (“LPI”) (a Nevada corporation),
and 813034 Alberta Ltd. (an Alberta corporation). The Company is in the business of acquiring, exploring and evaluating mineral
properties, and either joint venturing or developing these properties further or disposing of them when the evaluation is completed.
At June 30, 2016, the Company was in the exploration stage and controls a 100% interest in its Livengood Gold Project in Alaska,
U.S.A.
These unaudited condensed consolidated interim financial
statements have been prepared on a going-concern basis, which presumes the realization of assets and discharge of liabilities in
the normal course of business for the foreseeable future.
The Company will require significant additional financing
to continue its operations in connection with advancing activities at the Livengood Gold Project, to make the Additional Payment
due on January 12, 2017 (see Note 6) and for the development of any mine that may be determined to be built at the Livengood Gold
Project. There is no assurance that the Company will be able to obtain the additional financing required on acceptable terms, if
at all.
As of June 30, 2016, the Company’s estimate
of the amount of the Additional Payment is $14,700,000, which significantly exceeds the Company’s available cash resources,
and therefore the Company will be required to obtain significant additional financing on or before January 12, 2017 in order to
be able to make this payment.
Should the Company be unable to make the Additional
Payment, the Company will have 30 days to remedy the event of default. Should the default not be remedied, the Company may be required
to deliver the underlying claims, which are not part of the project’s gold resource but are part of the 75 square mile Livengood
land package, into a trust in order for them to be sold. Should the proceeds from sale not be sufficient to satisfy the outstanding
amount of the Additional Payment, the beneficiaries will have recourse against the Company for any shortfall. The Company considers
it highly likely that the proceeds from any such sale, should it prove necessary, would be sufficient to satisfy the amount of
the Additional Payment.
In addition, any significant delays in the issuance
of required permits for the ongoing work at the Livengood Gold Project, or unexpected results in connection with the ongoing work,
could result in the Company being required to raise additional funds to advance permitting efforts. The Company’s review
of its financing options includes pursuing a strategic alliance to assist in further development, permitting and future construction
costs.
Despite the Company’s success to date in raising
significant equity financing to fund its operations, there is significant uncertainty that the Company will be able to secure any
additional financing in the current or future equity markets. The amount of funds to be raised and the terms of any proposed equity
financing that may be undertaken will be negotiated by management as opportunities to raise funds arise. Specific plans related
to the use of proceeds will be devised once financing has been completed and management knows what funds will be available for
these purposes. Due to this uncertainty, if the Company is unable to secure additional financing, it will be required to reduce
all discretionary activities at the Project to preserve its working capital to fund anticipated non-discretionary expenditures
beyond the 2016 fiscal year.
These unaudited condensed consolidated interim financial
statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”)
for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X under the Securities
Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for
annual financial statements. These unaudited condensed consolidated interim financial statements should be read in conjunction
with the audited consolidated financial statements for the year ended December 31, 2015 as filed in our Annual Report on Form 10-K.
In the opinion of the Company’s management these financial statements reflect all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the Company’s financial position at June 30, 2016 and the results of its operations
for the six months then ended. Operating results for the six months ended June 30, 2016 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2016. The 2015 year-end balance sheet data was derived from audited
financial statements but does not include all disclosures required by U.S. GAAP.
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
Six Months Ended June 30, 2016 and 2015
|
(Expressed in US dollars – Unaudited)
|
The preparation of financial statements in conformity
with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts
of revenues and expenses during the period. These judgments, estimates and assumptions are continuously evaluated and are based
on management’s experience and knowledge of the relevant facts and circumstances. While management believes the estimates
to be reasonable, actual results could differ from those estimates and could impact future results of operations and cash flows.
On August 4, 2016, the Board approved these condensed
consolidated interim financial statements.
Basis of consolidation
These consolidated financial statements include the
accounts of ITH and its wholly owned subsidiaries TH Alaska, TH US, LPI and 813034 Alberta Ltd. All intercompany transactions and
balances have been eliminated.
|
3.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
The carrying values of cash and cash equivalents,
accounts receivable and accounts payable and accrued liabilities approximate their fair values due to the short-term maturity of
these financial instruments.
Financial instruments measured at fair value are
classified into one of three levels in the fair value hierarchy according to the significance of the inputs used in making the
measurement. The three levels of the fair value hierarchy are as follows:
|
·
|
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
|
|
·
|
Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly;
and
|
|
·
|
Level 3 – Inputs that are not based on observable market data.
|
|
|
Fair value as at June 30, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
22,984
|
|
|
$
|
-
|
|
Total
|
|
$
|
22,984
|
|
|
$
|
-
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Derivative liability (Note 6)
|
|
$
|
-
|
|
|
$
|
14,700,000
|
|
Total
|
|
$
|
-
|
|
|
$
|
14,700,000
|
|
|
|
Fair value as at December 31, 2015
|
|
|
|
Level 1
|
|
|
Level 2
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
11,741
|
|
|
$
|
-
|
|
Total
|
|
$
|
11,741
|
|
|
$
|
-
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
Derivative liability (Note 6)
|
|
$
|
-
|
|
|
$
|
13,900,000
|
|
Total
|
|
$
|
-
|
|
|
$
|
13,900,000
|
|
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
Six Months Ended June 30, 2016 and 2015
|
(Expressed in US dollars – Unaudited)
|
|
4.
|
CAPITALIZED ACQUISITION COSTS
|
The Company had the following activity related to
capitalized acquisition costs:
Capitalized acquisition costs
|
|
Amount
|
|
|
|
|
|
Balance, December 31, 2015
|
|
$
|
55,204,041
|
|
Acquisition costs
|
|
|
-
|
|
Balance, June 30, 2016
|
|
$
|
55,204,041
|
|
The following table presents costs incurred for exploration
and evaluation activities for the six months ended June 30, 2016 and 2015:
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
Exploration costs:
|
|
|
|
|
|
|
|
|
Aircraft services
|
|
$
|
4,050
|
|
|
$
|
4,185
|
|
Assay
|
|
|
-
|
|
|
|
9,984
|
|
Environmental
|
|
|
142,499
|
|
|
|
355,318
|
|
Equipment rental
|
|
|
21,586
|
|
|
|
26,968
|
|
Field costs
|
|
|
70,357
|
|
|
|
126,144
|
|
Geological/geophysical
|
|
|
1,293,989
|
|
|
|
258,368
|
|
Land maintenance & tenure
|
|
|
412,716
|
|
|
|
413,737
|
|
Legal
|
|
|
28,845
|
|
|
|
17,215
|
|
Transportation and travel
|
|
|
2,125
|
|
|
|
17,623
|
|
Total expenditures for the period
|
|
$
|
1,976,167
|
|
|
$
|
1,229,542
|
|
Livengood Gold Project
Property
The Livengood property is located
in the Tintina gold belt approximately 113 kilometers (70 miles) northwest of Fairbanks, Alaska. The property consists of land
leased from the Alaska Mental Health Trust, a number of smaller private mineral leases, Alaska state mining claims purchased or
located by the Company and patented ground held by the Company.
Details of the leases are as follows:
|
a)
|
a lease of the Alaska Mental Health Trust mineral rights having a term beginning July 1, 2004 and extending 19 years until
June 30, 2023, subject to further extensions beyond June 30, 2023 by either commercial production or payment of an advance minimum
royalty equal to 125% of the amount paid in year 19 and diligent pursuit of development. The lease requires minimum work expenditures
and advance minimum royalties (all of which minimum royalties are recoverable from production royalties) which escalate annually
with inflation. A net smelter return (“NSR”) production royalty of between 2.5% and 5.0% (depending upon the price
of gold) is payable to the lessor with respect to the lands subject to this lease. In addition, an NSR production royalty of l%
is payable to the lessor with respect to the unpatented federal mining claims subject to the lease described in b) below and an
NSR production royalty of between 0.5% and 1.0% (depending upon the price of gold) is payable to the lessor with respect to the
lands acquired by the Company as a result of the purchase of Livengood Placers, Inc. in December 2011. During the six months ended
June 30, 2016 and from the inception of this lease the Company has paid $326,776 and $2,302,666, respectively.
|
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
Six Months Ended June 30, 2016 and 2015
|
(Expressed in US dollars – Unaudited)
|
|
b)
|
a lease of federal unpatented lode mining claims having an initial term of ten years commencing on April 21, 2003 and continuing
for so long thereafter as advance minimum royalties are paid and mining related activities, including exploration, continue on
the property or on adjacent properties controlled by the Company. The lease requires an advance minimum royalty of $50,000 on or
before each anniversary date (all of which minimum royalties are recoverable from production royalties). An NSR production royalty
of between 2% and 3% (depending on the price of gold) is payable to the lessors. The Company may purchase 1% of the royalty for
$1,000,000. During the six months ended June 30, 2016 and from the inception of this lease the Company has paid $50,000 and $630,000,
respectively.
|
|
c)
|
a lease of patented lode mining claims having an initial term of ten years commencing January 18, 2007, and continuing for
so long thereafter as advance minimum royalties are paid. The lease requires an advance minimum royalty of $20,000 on or before
each anniversary date through January 18, 2017 and $25,000 on or before each subsequent anniversary (all of which minimum royalties
are recoverable from production royalties). An NSR production royalty of 3% is payable to the lessors. The Company may purchase
all interests of the lessors in the leased property (including the production royalty) for $1,000,000 (less all minimum and production
royalties paid to the date of purchase), of which $500,000 is payable in cash over four years following the closing of the purchase
and the balance of $500,000 is payable by way of the 3% NSR production royalty. During the six months ended June 30, 2016 and from
the inception of this lease the Company has paid $20,000 and $165,000, respectively.
|
|
d)
|
a lease of unpatented federal lode mining and federal unpatented placer claims having an initial term of ten years commencing
on March 28, 2007, and continuing for so long thereafter as advance minimum royalties are paid and mining related activities, including
exploration, continue on the property or on adjacent properties controlled by the Company. The lease requires an advance minimum
royalty of $15,000 on or before each anniversary date (all of which minimum royalties are recoverable from production royalties).
The Company is required to pay the lessor the sum of $250,000 upon making a positive production decision, payable $125,000 within
120 days of the decision and $125,000 within a year of the decision (all of which are recoverable from production royalties). An
NSR production royalty of 2% is payable to the lessor. The Company may purchase all of the interest of the lessor in the leased
property (including the production royalty) for $1,000,000. During the six months ended June 30, 2016 and from the inception of
this lease the Company has paid $15,000 and $113,000, respectively.
|
Title to mineral
properties
The acquisition of title to mineral properties is
a detailed and time-consuming process. The Company has taken steps to verify title to mineral properties in which it has an interest.
Although the Company has taken every reasonable precaution to ensure that legal title to its properties is properly recorded in
the name of the Company, there can be no assurance that such title will ultimately be secured.
The following table presents the accrued liabilities
balances at June 30, 2016 and December 31, 2015.
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
250,478
|
|
|
$
|
247,034
|
|
Accrued severance
|
|
|
-
|
|
|
|
19,900
|
|
Accrued salaries and benefits
|
|
|
84,583
|
|
|
|
127,502
|
|
Total accrued liabilities
|
|
$
|
335,061
|
|
|
$
|
394,436
|
|
Accrued liabilities at June 30, 2016 include accruals
for general corporate costs and project costs of $30,691 and $219,787, respectively. Accrued liabilities at December 31, 2015 include
accruals for general corporate costs and project costs of $27,535 and $219,499, respectively.
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
Six Months Ended June 30, 2016 and 2015
|
(Expressed in US dollars – Unaudited)
|
During 2011, the Company acquired certain mining claims
and related rights in the vicinity of the Livengood Gold Project located near Fairbanks, Alaska. The aggregate consideration for
the claims and rights was $13,500,000 in cash plus an additional payment based on the five-year average daily gold price (“Average
Gold Price”) from the date of the acquisition (“Additional Payment”). The Additional Payment will equal $23,148
for every dollar that the Average Gold Price exceeds $720 per troy ounce. If the Average Gold Price is less than $720, there will
be no additional consideration due.
At initial recognition on December 13, 2011 the derivative
liability was valued at $23,100,000. The key assumption used in the valuation of the derivative is the estimate of the future Average
Gold Price. The estimate of the future Average Gold Price was determined using a forward curve on future gold prices as published
by the CME Group. Using this forward curve, the Company estimated an Average Gold Price based on actual gold prices to June 30,
2016 and projected gold prices from June 30, 2016 to the end of the five year period in December 2016 of $1,355 per ounce of gold.
The fair value of the derivative liability and the
estimated Average Gold Price are as follows:
|
|
Total
|
|
|
Average Gold
Price ($/oz.)
|
|
Derivative value at December 31, 2015
|
|
$
|
13,900,000
|
|
|
$
|
1,320
|
|
Unrealized loss for the period
|
|
|
800,000
|
|
|
|
|
|
Derivative value at June 30, 2016
|
|
$
|
14,700,000
|
|
|
$
|
1,355
|
|
Authorized
500,000,000 common shares without par value. At
December 31, 2015 and June 30, 2016 there were 116,313,638 shares issued and outstanding.
Share issuances
There were no share issuances
during the six months ended June 30, 2016.
Stock options
The Company adopted an incentive stock option plan
in 2006, as amended September 19, 2012 and reapproved on May 28, 2015 at the Company’s Annual General Meeting (the “2006
Plan”). The essential elements of the 2006 Plan provide that the aggregate number of common shares of the Company’s
capital stock that may be made issuable pursuant to options granted under the 2006 Plan may not exceed 10% of the number of issued
shares of the Company at the time of the granting of the options. Options granted under the 2006 Plan will have a maximum term
of ten years. The exercise price of options granted under the 2006 Plan shall be fixed in compliance with the applicable provisions
of the TSX Company Manual in force at the time of grant and, in any event, shall not be less than the closing price of the Company’s
common shares on the TSX on the trading day immediately preceding the day on which the option is granted, or such other price as
may be agreed to by the Company and accepted by the Toronto Stock Exchange. Options granted under the 2006 Plan vest immediately,
unless otherwise determined by the directors at the date of grant.
During the six month period ended June 30, 2016, there
were no incentive stock options granted by the Company.
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
Six Months Ended June 30, 2016 and 2015
|
(Expressed in US dollars – Unaudited)
|
A summary of the status of the
stock option plan as of June 30, 2016 and December 31, 2015 and changes is presented below:
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price (C$)
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price (C$)
|
|
Balance, beginning of the period
|
|
|
6,066,200
|
|
|
$
|
1.60
|
|
|
|
5,854,000
|
|
|
$
|
2.68
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
2,135,200
|
|
|
$
|
0.80
|
|
Cancelled
|
|
|
-
|
|
|
$
|
-
|
|
|
|
(1,923,000
|
)
|
|
$
|
4.01
|
|
Balance, end of the period
|
|
|
6,066,200
|
|
|
$
|
1.60
|
|
|
|
6,066,200
|
|
|
$
|
1.60
|
|
The weighted average remaining
life of options outstanding at June 30, 2016 was 4.29 years.
Stock options outstanding
are as follows:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Expiry Date
|
|
Exercise
Price (C$)
|
|
|
Number of
Options
|
|
|
Exercisable
|
|
|
Exercise
Price (C$)
|
|
|
Number of
Options
|
|
|
Exercisable
|
|
August 24, 2017
|
|
$
|
3.17
|
|
|
|
1,675,000
|
|
|
|
1,675,000
|
|
|
$
|
3.17
|
|
|
|
1,675,000
|
|
|
|
1,675,000
|
|
March 14, 2018
|
|
$
|
2.18
|
|
|
|
319,000
|
|
|
|
319,000
|
|
|
$
|
2.18
|
|
|
|
319,000
|
|
|
|
319,000
|
|
February 25, 2022
|
|
$
|
1.11
|
|
|
|
1,030,000
|
|
|
|
1,030,000
|
|
|
$
|
1.11
|
|
|
|
1,030,000
|
|
|
|
686,666
|
|
February 25, 2022
|
|
$
|
0.73
|
|
|
|
594,000
|
|
|
|
594,000
|
|
|
$
|
0.73
|
|
|
|
594,000
|
|
|
|
396,000
|
|
March 10, 2022
|
|
$
|
1.11
|
|
|
|
430,000
|
|
|
|
430,000
|
|
|
$
|
1.11
|
|
|
|
430,000
|
|
|
|
286,666
|
|
March 16, 2023
|
|
$
|
1.00
|
|
|
|
1,260,000
|
|
|
|
839,999
|
|
|
$
|
1.00
|
|
|
|
1,260,000
|
|
|
|
419,999
|
|
March 16, 2023
|
|
$
|
0.50
|
|
|
|
728,200
|
|
|
|
485,466
|
|
|
$
|
0.50
|
|
|
|
728,200
|
|
|
|
242,733
|
|
June 9, 2023
|
|
$
|
1.00
|
|
|
|
30,000
|
|
|
|
20,000
|
|
|
$
|
1.00
|
|
|
|
30,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
6,066,200
|
|
|
|
5,393,465
|
|
|
|
|
|
|
|
6,066,200
|
|
|
|
4,036,064
|
|
A summary of the non-vested options
as of June 30, 2016 and changes during the six months ended June 30, 2016 is as follows:
Non-vested options:
|
|
Number of
options
|
|
|
Weighted
average grant-
date fair value
(C$)
|
|
Outstanding at December 31, 2015
|
|
|
2,030,136
|
|
|
$
|
0.34
|
|
Vested
|
|
|
(1,357,401
|
)
|
|
$
|
0.38
|
|
Outstanding at June 30, 2016
|
|
|
672,735
|
|
|
$
|
0.25
|
|
At June 30, 2016 there was unrecognized
compensation expense of C$59,906 related to non-vested options outstanding. The cost is expected to be recognized over a weighted-average
remaining period of approximately 0.71 years.
Share-based payments
During the six month period ended June 30, 2016, there
were no incentive stock options granted by the Company. Share-based payment charges for the six months ended June 30, 2016 totaled
$76,295.
During the six month period ended June 30, 2015, the
Company granted 2,135,200 stock options with a fair value of $435,213, calculated using the Black-Scholes option pricing model.
Share-based payment charges for the six months ended June 30, 2015 totaled $361,991.
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
Six Months Ended June 30, 2016 and 2015
|
(Expressed in US dollars – Unaudited)
|
The following weighted average assumptions
were used for the Black-Scholes option pricing model calculations:
|
|
December 31,
2015
|
|
Expected life of options
|
|
|
6 years
|
|
Risk-free interest rate
|
|
|
0.97
|
%
|
Annualized volatility
|
|
|
80.60
|
%
|
Dividend rate
|
|
|
0.00
|
%
|
Exercise price (C$)
|
|
$
|
0.80
|
|
The expected volatility used in the Black-Scholes
option pricing model is based on the historical volatility of the Company’s shares.
|
8.
|
SEGMENT AND GEOGRAPHIC INFORMATION
|
The Company operates in a single reportable segment,
being the exploration and development of mineral properties. The following tables present selected financial information by geographic
location:
|
|
Canada
|
|
|
United States
|
|
|
Total
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized acquisition costs
|
|
$
|
-
|
|
|
$
|
55,204,041
|
|
|
$
|
55,204,041
|
|
Property and equipment
|
|
|
9,255
|
|
|
|
18,188
|
|
|
|
27,443
|
|
Current assets
|
|
|
2,462,454
|
|
|
|
797,058
|
|
|
|
3,259,512
|
|
Total assets
|
|
$
|
2,471,709
|
|
|
$
|
56,019,287
|
|
|
$
|
58,490,996
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized acquisition costs
|
|
$
|
-
|
|
|
$
|
55,204,041
|
|
|
$
|
55,204,041
|
|
Property and equipment
|
|
|
9,563
|
|
|
|
20,520
|
|
|
|
30,083
|
|
Current assets
|
|
|
6,106,135
|
|
|
|
579,577
|
|
|
|
6,685,712
|
|
Total assets
|
|
$
|
6,115,698
|
|
|
$
|
55,804,138
|
|
|
$
|
61,919,836
|
|
Three months ended
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
Net loss for the period – Canada
|
|
$
|
(248,679
|
)
|
|
$
|
(504,557
|
)
|
Net loss for the period - United States
|
|
|
(1,820,171
|
)
|
|
|
(1,544,311
|
)
|
Net loss for the period
|
|
$
|
(2,068,850
|
)
|
|
$
|
(2,048,868
|
)
|
Six months ended
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
Net loss for the period – Canada
|
|
$
|
(638,607
|
)
|
|
$
|
(311,959
|
)
|
Net loss for the period - United States
|
|
|
(3,917,699
|
)
|
|
|
(2,373,404
|
)
|
Net loss for the period
|
|
$
|
(4,556,306
|
)
|
|
$
|
(2,685,363
|
)
|
INTERNATIONAL TOWER HILL MINES LTD.
|
(An Exploration Stage Company)
|
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
|
Six Months Ended June 30, 2016 and 2015
|
(Expressed in US dollars – Unaudited)
|
The following table discloses, as of June 30, 2016,
the Company’s contractual obligations including anticipated mineral property payments and work commitments. Under the terms
of the Company’s mineral property purchase agreements, mineral leases and the terms of the unpatented mineral claims held
by it, the Company is required to make certain scheduled acquisition payments, incur certain levels of expenditures, make lease
or advance royalty payments, make payments to government authorities and incur assessment work expenditures as summarized in the
table below in order to maintain and preserve the Company’s interests in the related mineral properties. If the Company is
unable or unwilling to make any such payments or incur any such expenditure, it is likely that the Company would lose or forfeit
its rights to acquire or hold the related mineral properties. The following table assumes that the Company retains the rights to
all of its current mineral properties, but does not exercise any lease purchase or royalty buyout options:
|
|
Payments Due in Calendar Year
|
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021 and
beyond
|
|
|
Total
|
|
Livengood Property Purchase
(1)
|
|
$
|
-
|
|
|
$
|
14,700,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,700,000
|
|
Mineral Property Leases
(2)
|
|
|
-
|
|
|
|
421,850
|
|
|
|
426,903
|
|
|
|
432,032
|
|
|
|
442,237
|
|
|
|
447,521
|
|
|
|
2,170,543
|
|
Mining Claim Government Fees
|
|
|
114,445
|
|
|
|
114,445
|
|
|
|
114,445
|
|
|
|
114,445
|
|
|
|
114,445
|
|
|
|
114,445
|
|
|
|
686,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
114,445
|
|
|
$
|
15,236,295
|
|
|
$
|
541,348
|
|
|
$
|
546,477
|
|
|
$
|
556,682
|
|
|
$
|
561,966
|
|
|
$
|
17,557,213
|
|
|
1.
|
The amount payable on January 12, 2017 of $14,700,000 represents the fair value of the Company’s derivative liability
as at June 30, 2016 and will be revalued at each subsequent reporting period. See Note 6.
|
|
2.
|
Does not include required work expenditures, as it is assumed that the required expenditure level is significantly below the
level of work that will actually be carried out by the Company. Does not include potential royalties that may be payable (other
than annual minimum royalty payments). See Note 4.
|
|
10.
|
RELATED PARTY TRANSACTIONS
|
In December 2011, in accordance with a Stock and Asset
Purchase Agreement (the “Agreement”) between the Company, Alaska/Nevada Gold Mines, Ltd. (“AN Gold Mines”)
and the Heflinger Group, the Company acquired certain mining claims and related rights in the vicinity of the Livengood Gold Project
located near Fairbanks, Alaska. The Company’s derivative liability, as described in Note 6 above, represents the remaining
consideration for the purchase of these claims and related rights and is payable in January 2017. Under the Agreement, the payment
is due 70% to AN Gold Mines and 30% to the Heflinger Group.
Mr. Hanneman was appointed Chief Operating Officer
of the Company on March 26, 2015. Mr. Hanneman is a partner of the general partner, as well as a limited partner, of AN Gold Mines
and holds an 11.9% net interest in AN Gold Mines.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of
Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our Annual Report on
Form 10-K for the year ended December 31, 2015. All currency amounts are stated in US dollars unless noted otherwise.
Current Business Activities
Livengood Gold Project
During the six months ended June 30, 2016 and to the date of
this Quarterly Report on Form 10-Q, the Company progressed on a number of opportunities identified in the September 2013 Study
and opportunities subsequently developed by the Company with the potential for optimization and reducing the costs of building
and operating a mine at the Project.
The engineering firm of BBA Inc., based in Montreal, is in the
process of evaluating engineering and metallurgical results and proceeding with the “Throughput Rationalization Study”
that is scheduled to be completed in 2016.
The Company has sufficient
funds to complete the test programs and engineering work underway.
Results of Operations
Summary of Quarterly Results
Description
|
|
June 30, 2016
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
September 30, 2015
|
|
Net loss
|
|
$
|
(2,068,850
|
)
|
|
$
|
(2,487,456
|
)
|
|
$
|
(1,119,972
|
)
|
|
$
|
(1,007,489
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
June 30, 2015
|
|
|
March 31, 2015
|
|
|
December 31, 2014
|
|
|
September 30, 2014
|
|
Net loss
|
|
$
|
(2,048,868
|
)
|
|
$
|
(636,495
|
)
|
|
$
|
(1,654,469
|
)
|
|
$
|
(1,170,906
|
)
|
Basic and diluted net loss per common share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
Three Months Ended June 30, 2016 compared to Three Months
Ended June 30, 2015
The Company incurred a net loss of $2,068,850 for the three
month period ended June 30, 2016, compared to a net loss of $2,048,868 for the three month period ended June 30, 2015.
Mineral property expenditures increased $351,450 to $1,179,662
for the three months ended June 30, 2016 from $828,212 for the three months ended June 30, 2015 primarily due to the Company moving
forward with a multi-phase metallurgical test work program and limiting field activities to continuation of critical environmental
baseline studies.
Excluding share-based payments, investor relations expense decreased
to $27,424 during the three months ended June 30, 2016 compared to $55,994 during the three months ended June 30, 2015 as the Company
continues its efforts to lower travel and marketing costs.
Consulting and professional fees were $112,613 for the three
months ended June 30, 2016 compared to $186,470 for the three months ended June 30, 2015. The decrease of $73,857 is primarily
due to the Company negotiating lower rates in 2016 for various third party-provided professional fees such as legal and accounting
fees.
Share-based payment charges
Share-based payment charges for the three month periods ended
June 30, 2016 and 2015 were allocated as follows:
Expense category:
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
Consulting
|
|
$
|
3,588
|
|
|
$
|
22,180
|
|
Investor relations
|
|
|
1,005
|
|
|
|
4,883
|
|
Wages and benefits
|
|
|
11,051
|
|
|
|
65,216
|
|
|
|
$
|
15,644
|
|
|
$
|
92,279
|
|
Share-based payment charges were $15,644 during the three months
ended June 30, 2016 compared to $92,279 during the three months ended June 30, 2015. The decrease of $76,635 in share-based payment
charges during the period was mainly the result of a reduction in the fair value of options granted in 2015 as compared to 2014.
Most other expense categories reflected moderate decreases period
over period reflecting the Company’s efforts to reduce spending.
Other items amounted to a loss of $61,227 during the three month
period ended June 30, 2016 compared to a loss of $198,091 during the three month period ended June 30, 2015. Total other loss resulted
from the unrealized loss on the revaluation of the derivative liability of $100,000. This unrealized loss was caused by the increase
in the price per ounce of gold during the three month period ended June 30, 2016 and is compared to an unrealized loss of $100,000
during the three month period ended June 30, 2015. The Company had a foreign exchange gain of $2,098 during the three month period
ended June 30, 2016 compared to a loss of $131,360 during the three month period ended June 30, 2015 as a result of the impact
of exchange rates on certain of the Company’s U.S. dollar cash balances. The average exchange rate during the three month
period ended June 30, 2016 was C$1 to US$0.7761 compared to C$1 to US$0.8132 for the three month period ended June 30, 2015.
Six Months Ended June 30, 2016 compared to Six Months
Ended June 30, 2015
The Company incurred a net loss of $4,556,306 for the six month
period ended June 30, 2016, compared to a net loss of $2,685,363 for the six month period ended June 30, 2015.
Mineral property expenditures increased $746,625 to $1,976,167
for the six months ended June 30, 2016 from $1,229,542 for the six months ended June 30, 2015 primarily due to the Company moving
forward with a multi-phase metallurgical test work program and limiting field activities to continuation of critical environmental
baseline studies. Consulting and professional fees for the six months ended June 30, 2016 decreased by $155,348 from the six month
period ended June 30, 2015 as the Company negotiated lower rates in 2016 for various third party-provided professional fees such
as legal and accounting fees.
Excluding share-based payments, investor relations expense decreased
to $44,900 during the six months ended June 30, 2016 compared to $75,041 during the six months ended June 30, 2015 as the Company
continues its efforts to lower travel and marketing costs.
Share-based payment charges
Share-based payment charges for the six month periods ended
June 30, 2016 and 2015 were allocated as follows:
Expense category:
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
Consulting
|
|
$
|
18,154
|
|
|
$
|
74,065
|
|
Investor relations
|
|
|
4,487
|
|
|
|
18,039
|
|
Wages and benefits
|
|
|
53,654
|
|
|
|
269,887
|
|
|
|
$
|
76,295
|
|
|
$
|
361,991
|
|
Share-based payment charges were $76,295 during the six months
ended June 30, 2016 compared to $361,991 during the six months ended June 30, 2015. The decrease of $285,696 in share-based payment
charges during the period was primarily the result of a reduction in the fair value of options granted in 2015 as compared to 2014.
The Company granted no options during the six months ended June 30, 2016 compared to 2,135,200 during the six months ended June
30, 2015.
Remaining other expense categories reflected moderate decreases
period over period reflecting the Company’s efforts to reduce spending.
Other items amounted to a loss of $878,269 during the six month
period ended June 30, 2016 compared to a gain of $720,520 during the six month period ended June 30, 2015. Total other loss resulted
from the unrealized loss on the revaluation of the derivative liability of $800,000. This unrealized loss was caused by the increase
in the price per ounce of gold during the six month period ended June 30, 2016 and is compared to an unrealized gain of $100,000
during the six month period ended June 30, 2015. The Company had a foreign exchange loss of $121,764 during the six month period
ended June 30, 2016 compared to a foreign exchange gain of $570,895 during the six month period ended June 30, 2015. The average
exchange rate during the six month period ended June 30, 2016 was C$1 to US$0.7518 compared to C$1 to US$0.8095 for the six month
period ended June 30, 2015.
Liquidity Risk and Capital Resources
The Company has no revenue generating operations from which
it can internally generate funds. To date, the Company’s ongoing operations have been predominantly financed through sale
of its equity securities by way of private placements and the subsequent exercise of share purchase and broker warrants and options
issued in connection with such private placements. However, the exercise of warrants/options is dependent primarily on the market
price and overall market liquidity of the Company’s securities at or near the expiry date of such warrants/options (over
which the Company has no control) and therefore there can be no guarantee that any existing warrants/options will be exercised.
There are currently no warrants outstanding.
As at June 30, 2016, the Company had cash and cash equivalents
of $2,888,471 compared to $6,493,486 at December 31, 2015. The decrease of approximately $3.6 million resulted mainly from expenditures
on the Livengood Gold Project of approximately $3.9 million offset by a positive foreign currency translation impact of approximately
$0.3 million. The Company continues to utilize its cash resources to pursue opportunities identified in the September 2013 Study
and subsequently identified by the Company, to fund environmental activities required for preservation of baseline database and
future permitting as well as to complete corporate administrative requirements.
The Company had no cash flows from investing activities or financing
activities during the six month periods ended June 30, 2016 and 2015.
As at June 30, 2016, the Company had a working capital deficit
of $11,901,129 compared to working capital of $6,169,233 at December 31, 2015. The negative working capital is mainly the result
of the reclassification of the contingent derivative payment to a current liability. The Company expects that it will operate at
a loss for the foreseeable future, but believes the current cash and cash equivalents will be sufficient for it to complete its
anticipated 2016 work plan at the Livengood Gold Project and continue to operate until at least June 30, 2017. To advance the Livengood
Gold Project towards permitting and development, the Company anticipates maintaining certain essential development activities for
the fiscal year ending December 31, 2016. These essential activities include maintaining environmental baseline data that in its
absence could materially delay future permitting of the Livengood Gold Project.
The Company will require significant additional financing to
continue its operations (including general and administrative expenses) in connection with advancing activities at the Livengood
Gold Project, the contingent payment due in January 2017 and the development of any mine that may be determined to be built at
the Livengood Gold Project, and there is no assurance that the Company will be able to obtain the additional financing required
on acceptable terms, if at all. As at June 30, 2016, the Company’s estimate of the amount of the contingent payment is $14,700,000.
This contingent payment, which is due in January 2017, significantly exceeds the Company’s available cash resources, and
therefore the Company will be required to secure significant additional financing on or before January 2017 in order to be able
to make this payment. See Note 1 of the notes to the unaudited condensed consolidated interim financial statements for the period
ended June 30, 2016. In addition, any significant delays in the issuance of required permits for the ongoing work at the Livengood
Gold Project, or unexpected results in connection with the ongoing work, could result in the Company being required to raise additional
funds to advance permitting efforts. The Company’s review of its financing options includes pursuing a future strategic alliance
to assist in further development, permitting and future construction costs.
Despite the Company’s success to date in raising significant
equity financing to fund its operations, there is significant uncertainty that the Company will be able to secure any additional
financing in the current or future equity markets. See “Risk Factors – We will require additional financing to fund
exploration and, if warranted, development and production. Failure to obtain additional financing could have a material adverse
effect on our financial condition and results of operation and could cast uncertainty on our ability to continue as a going concern”
in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2015. The quantity of funds
to be raised and the terms of any proposed equity financing that may be undertaken will be negotiated by management as opportunities
to raise funds arise. Specific plans related to the use of proceeds will be devised once financing has been completed and management
knows what funds will be available for these purposes. Due to this uncertainty, if the Company is unable to secure additional
financing, it will be required to reduce all discretionary activities at the Project to preserve its working capital to fund anticipated
non-discretionary expenditures during and beyond the 2016 fiscal year.
Other than cash held by its subsidiaries for their immediate
operating needs in the United States, all of the Company’s cash reserves are on deposit with a major Canadian chartered bank.
The Company does not believe that the credit, liquidity or market risks with respect thereto have increased as a result of the
current market conditions.
Contractual Obligations
The following table discloses, as of June 30, 2016, the Company’s
contractual obligations including anticipated mineral property payments and work commitments. Under the terms of the Company’s
mineral property purchase agreements, mineral leases and the terms of the unpatented mineral claims held by it, the Company is
required to make certain scheduled acquisition payments, incur certain levels of expenditures, make lease or advance royalty payments,
make payments to government authorities and incur assessment work expenditures as summarized in the table below in order to maintain
and preserve the Company’s interests in the related mineral properties. If the Company is unable or unwilling to make any
such payments or incur any such expenditure, it is likely that the Company would lose or forfeit its rights to acquire or hold
the related mineral properties. The following table assumes that the Company retains the rights to all of its current mineral properties,
but does not exercise any lease purchase or royalty buyout options:
|
|
Payments Due in Calendar Year
|
|
|
|
2016
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021 and
beyond
|
|
|
Total
|
|
Livengood Property Purchase
(1)
|
|
$
|
-
|
|
|
$
|
14,700,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,700,000
|
|
Mineral Property Leases
(2)
|
|
|
-
|
|
|
|
421,850
|
|
|
|
426,903
|
|
|
|
432,032
|
|
|
|
442,237
|
|
|
|
447,521
|
|
|
|
2,170,543
|
|
Mining Claim Government Fees
|
|
|
114,445
|
|
|
|
114,445
|
|
|
|
114,445
|
|
|
|
114,445
|
|
|
|
114,445
|
|
|
|
114,445
|
|
|
|
686,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
114,445
|
|
|
$
|
15,236,295
|
|
|
$
|
541,348
|
|
|
$
|
546,477
|
|
|
$
|
556,682
|
|
|
$
|
561,966
|
|
|
$
|
17,557,213
|
|
|
1.
|
The amount payable on January 12, 2017 of $14,700,000 represents the fair value of the Company’s derivative liability
as at June 30, 2016 and will be revalued at each subsequent reporting period.
|
|
2.
|
Does not include required work expenditures, as it is assumed that the required expenditure level is significantly below the
level of work that will actually be carried out by the Company. Does not include potential royalties that may be payable (other
than annual minimum royalty payments).
|
Other – Related Party Transactions
In December 2011, in accordance with a Stock and Asset Purchase
Agreement (the “Agreement”) between the Company, Alaska/Nevada Gold Mines, Ltd. (“AN Gold Mines”) and the
Heflinger Group, the Company acquired certain mining claims and related rights in the vicinity of the Livengood Gold Project located
near Fairbanks, Alaska. The Company’s derivative liability, as described in Note 6 of the financial statements for the period
ended June 30, 2016, represents the remaining consideration for the purchase of these claims and related rights and is payable
in January 2017. Under the Agreement, the payment is due 70% to AN Gold Mines and 30% to the Heflinger Group.
Mr. Hanneman was appointed Chief Operating Officer of the Company
on March 26, 2015. Mr. Hanneman is a partner of the general partner, as well as a limited partner, of AN Gold Mines and holds an
11.9% net interest in AN Gold Mines.
Off-Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements.
Environmental Regulations
The operations of the Company may in the future be affected
from time to time in varying degrees by changes in environmental regulations, including those for future removal and site restoration
costs. Both the likelihood of new regulations and their overall effect upon the Company vary greatly and are not predictable. The
Company’s policy is to meet or, if possible, surpass standards set by relevant legislation by application of technically
proven and economically feasible measures.
Certain U.S. Federal Income Tax Considerations for U.S.
Holders
The Company has been a “passive foreign investment company” (“PFIC”) for U.S. federal income tax purposes
in recent years and expects to continue to be a PFIC in the future. Current and prospective U.S. shareholders should consult
their tax advisors as to the tax consequences of PFIC classification and the U.S. federal tax treatment of PFICs. Additional
information on this matter is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015,
under “Part II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities - Certain U.S. Federal Income Tax Considerations for U.S. Holders.”